Inventory Financing

How much are you looking for?

price

Loan Amounts

$25,000 – $10,000,000+

Terms

Revolving Credit

Rates

Starting at 7.25%

Speed

24 – 48 Hours

Benefits to working with SMB Compass

  • Successful track record of supporting small businesses

  • Free consultations to discuss financing options

  • 5 Star Customer Reviews

  • Over $160 million delivered to 1,100+ small businesses

  • 10+ years of business lending expertise

  • Flexible and low cost options available

Loan Amounts

$25,000 – $10,000,000

Terms

1 – 5 Years

Rates

7% – 12%

Speed

10 – 14 Days

What is Inventory Financing?

Inventory financing is a form of asset-based lending that relies solely on your business’s inventory as collateral for a loan. With asset-based lending programs you can utilize other assets in addition to inventory or just standalone inventory. Businesses that are in B2B industries will be able to use inventory, accounts receivables, and equipment, while B2C industries will only have inventory and potentially equipment. In either case, using your inventory as collateral for a loan can help you improve cash for operating expenses and growth.

The amount of money you can borrow against your inventory is going to depend on your industry, the inventory churn, and the type of inventory that you have. It’s common for businesses to have inventory in three separate categories; raw materials, work in progress (WIP), and finished goods. While all have value and are assets on your balance sheet, not all is appealing to inventory lenders. The key component to evaluating the value of your inventory is going to be the ability for a third party to sell your inventory in the event you are not able to pay back the loan. Raw materials are easily liquidated, which makes it an appealing form of inventory for inventory lenders. As long as there is a market for sale, finished goods inventory is also an attractive form of inventory. However, work in progress or WIP inventory is usually not valuable to asset-based lenders or inventory lenders. This is normally the case because it is usually sold for just the melt down or material value, which could be pennies on the dollar. Learn more about inventory financing programs by speaking with a Lending Advisor today!

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What are the benefits of Inventory Financing?

Like all forms of asset-based lending, inventory financing is a great way to unlock cash that’s sitting on your balance sheet. Valuable inventory provides asset-based lenders with comfort when cash flow alone can’t support a business loan. A major benefit of inventory financing is that it’s frequently structured as revolving lines of credit. This means that principal and interest payment are due when inventory churns or is sold. Having an inventory line of credit will provide the ability to unlock tied up cash and not make any amortizing payments. Without monthly payments you’ll have an immediate increase in cashflow.

How does Inventory Financing work?

The process to apply for inventory financing is document intensive and requires field audits and inventory valuations. The first part of the underwriting process will consist of your business financial documents. Some of those documents include; profit and loss statement, balance sheet, A/R and A/P Aging report, inventory report, business tax returns, and future projections. Once those documents are received and your business is approved for inventory financing you will receive a term sheet outlining the inventory loan amount, advance rate, interest rate, and any associated fees. When you accept and sign the term sheet you will have to make a deposit for a field audit and diligence. The field audit plays a significant role in what your final approval and availability will be for your inventory financing line of credit. After the reports are received and the final approval is issued you will be able to borrow up to 80% of your inventory’s appraised value.

What type of collateral is used for Inventory Financing?

Inventory is the main asset used for inventory financing. The type of inventory, the ease of liquidation, and the location of the inventory play a major role in determining the advance rate or LTV for an inventory loan. For example, a company that manufactures its own jewelry might receive a 30% LTV from a lender while a steel manufacturer that holds raw steel as inventory might receive a 65% LTV. From a lender’s perspective the faster and easier they can sell the inventory, the higher the value they will assign.

What are the rates and fees for Inventory Financing?

Inventory financing rates and fees are dependent on a variety of different factors. The first factor that effects rates is the enterprise risk or credit profile of your company. Next, will be the type of inventory you have, the size of your company, and the amount of money you expect to borrow from an inventory lender. Inventory lenders will look at the following.

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Profitability

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Cashflow

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Business Credit

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Personal Credit

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Tax and Lien History

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Inventory Churn

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Diversity of Customer Base

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Quality of Inventory

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